Participants Guide Sustaining Competitive Advantage
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1 Participants Guide Sustaining Competitive Advantage 2011 RAN ONE Americas
2 Basically there are three main ways in which you can compete in the marketplace: On Price By serving a niche market better than anybody else On the individuality of your product or service Which of these is the better long-term strategy? Undoubtedly a lower price than the competitor is an immediate advantage - but will it deliver a continuing competitive edge? Differentiating your products from your competitors will provide a much harder to match advantage for your business. This topic concentrates on how to deliver benefits that exceed those of competing products, by developing a differentiation strategy. Drawing on some of Michael Porter s ideas on how competition actually works in the business world, this topic explores the value of performing a competitive analysis on your business. This information will enable you to focus on how your products rate against those of competitors and thus in turn you can make informed decisions about the sort of strategy to use with your product to gain the best competitive advantage. This set of Support Resources will provide you the slide visuals used in the recorded video. Work through the slides and take notes along with the video. Tips: After starting the video you can double click on the window or click on in the video tool bar to view full screen. Make sure to download the action plan for the next steps Talk to your RAN ONE Business Advisor about the services they have to assist you NOTE: Some slides may be different from the video used RAN ONE Americas
3 Sustaining Competitive Advantage Types Of Competitive Advantage Types Of Competitive Advantage Basically the three main ways in which you can compete in the marketplace are: On price By serving a niche market better than anybody else and, On the individuality of your product or service 1
4 Operations Reform Offers Cost Advantage Operations Reform Offers Cost Advantage Operations reform can provide some degree of competitive advantage But it is easily matched by competitors who change to more efficient methods themselves Result: you are forced to compete on price alone Operations reform alone won t deliver sustainable advantage Serving Niche Markets 2
5 Serving Niche Markets Focus strategy Sell small volumes No access to economies of scale Charge premium prices Risk factors Tastes change and niches disappear Larger competitors might put out imitative products Differentiation Provides A Sustainable Competitive Advantage Differentiation Provides A Sustainable Competitive Advantage There is an inverse relationship between profit margins or returns and the intensity of competition: as the intensity of competition goes up, margins and returns are driven down. This can require changes in competitive strategy to remain in an industry So how do you develop a competitive strategy? 3
6 How Competition Works: The Five Forces SUBSTITUTE PRODUCTS Competitive pressures coming from the attempts of outsiders to win customers over to their products SUPPLIERS OF RAW MATERIALS, PARTS, COMPONENTS, OR OTHER RESOURCE INPUTS Competitive pressures from supplier bargaining power Competitive pressure form the rivalry amongst firms in the industry Competitive pressures from customer buying power CUSTOMERS Competitive pressures coming from the threat of entry of new businesses POTENTIAL NEW ENTRANTS Adapted from Michael Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (Free Press 1980) Force 1: Business Rivalry Force 1: Business Rivalry Some factors that put the pressure on rivalry among existing competitors: Many competitors and/or similar products Slow demand growth Competition on price alone Low switching cost by customers to another product High exit barriers 4
7 Force 2: Customer Buying Power Force 2: Customer Buying Power These factors tend to increase customer buying power 1. You re selling inessentials Your products are very similar to your competitors products They can easily switch to competitors They are a well organised group and act cohesively when buying 2. There are only a few buyers Buy in large volume Products are big ticket Force 3: Supplier Selling Power 5
8 Force 3: Supplier Selling Power Suppliers gain strength when they: Are few in number Have close ties to each other Sell products that lack alternatives Supply goods critical to your processes Are large and hungry: could buy one of your competitors and set up as direct rivals Force 4: Attempts By Outsiders To Win Customers Over To Their Products Force 4: Attempts By Outsiders To Win Customers Over To Their Products A substitute product is a different product to what you re selling that could be used to get the same end result Spectacles vs. contact lens You should always be scanning the external environment for industry developments that might threaten your existing product range 6
9 Force 5: The Threat Of Entry Of New Rivals Force 5: The Threat Of Entry Of New Rivals Competitive pressure is influenced by how hard it is for others to get into the industry. Barriers to entry include: High start up costs Intensive marketing requirements Need for specific and unusual expertise Heavy government regulation the cost of meeting requirements Brand identity Threat of retaliation from existing businesses Bullet Proofing The Barrier 7
10 Bullet Proofing The Barrier Differentiation provides a barrier to entry Build brand and customer loyalty Make it tough for new entrants Low barriers mean many competitors Short on cash and competing on price Scanning The External Environment Competition Industry Technology The Business Customers Business Environment Shareholder Circumstances What s Happening In The Business Environment? 8
11 What s Happening In The Business Environment? Industry regulation Taxation structure Employment regulations Environmental regulations Economic growth What New Technologies Are Emerging? What New Technologies Are Emerging? What new technologies are in development or on the market? What is the cost or usefulness of implementing them? 9
12 Where Is The Industry Heading? Where Is The Industry Heading? Industry life cycle Early development Industry take off Rapid growth Competitive shake-out Maturity Market saturation Stagnation Decline Benefiting From Competitive Analysis 10
13 Benefiting From Competitive Analysis Early warning on threats Early hints of opportunities Get ahead of the competition Minimise competitive pressure Safeguard profit margins How Do You Scan The External Environment? Internal Assessment Of The Organisation Strengths Weaknesses SWOT ANALYSIS Opportunities Threats External Assessment Of The Environment Scanning The Competition 11
14 Scanning The Competition Identify direct competitors Direct = same product and geographical area Identify indirect competitors Indirect = related products that may compete Watch for new products or diversification Identifying Strengths And Weaknesses Identifying Strengths And Weaknesses Focus on top 20% of competitors Don t compete where you re weaker Market against their weaknesses Analyse their marketing: Papers and magazines Brochures Annual reports 12
15 Listening To Customers Listening To Customers Establish what customers think Their perception is the reality Market research: Focus groups (customer advisory boards) Questionnaires Identifying Strengths And Weaknesses 13
16 Identifying Strengths And Weaknesses List strengths and weaknesses of: Business Products Example: Phone-Fax Product Matrix Speed of operation Memory capacity Compatibility with other devices Print and image quality Warranty conditions Search For Differentiators 14
17 Search For Differentiators Use intellectual property? Brand development? Highlight customer service? Highlight skills? Work on product innovation? Which Strategy? Which Strategy? Cost leadership Differentiation Focus 15
18 Cost Leadership Cost Leadership Low cost Cut prices to win market share Relies on low input costs Raw materials Labour Broad market Cost Leadership Risks 16
19 Cost Leadership Risks Entry barriers lowered must cut costs to deter new competitors Substitutes introduced must lower prices to remain in consideration Industry rivalry intensifies must compete on price Suppliers increase prices can t pass on to customers Differentiation Differentiation Unique product or service features Charge higher prices Need creative and innovative team Market to communicate uniqueness Risk of imitation 17
20 Conclusion Conclusion Analyse on a continuing basis Look ahead Think strategically Be aware of threats and opportunities Call on us for help 18
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